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Traditional
Pension Plans
- the new law will
increase the tax deduction for plan contributions from 100% of the
plan's current liability to 150% of current plan liabilities in 2006
and 2007;
- the new law requires
most pension plans to become fully funded over a seven-year period;
- valuing pension
liabilities, adjusting benefit limitations and having "at
risk" plans subject to stricter funding requirements are some
of the other technical matters addressed in this bill;
New
and Enhanced Retirement-Savings Incentives
- the new law makes it
easier for employers to automatically enroll employees into the
company's 401 (k) plan; as such, employees must affirmatively opt-
out to avoid participation;
- 401(k), IRA and similar
providers are permitted to offer personalized investment advice to
accountholders. However, such providers cannot advise employers
about which funds and investments to include in their plans;
- taxpayers can direct
the IRS to deposit their tax refund into an IRA;
- taxpayers are currently
permitted to roll over a deceased spouse's interest in a qualified
retirement plan into an IRA. The new law extends this treatment to nonspouse beneficiaries. This rule may benefit
same-sex couples;
- effective for
distributions after December 31, 2007, the new law will allow direct
rollovers from a qualified retirement plan directly to a Roth IRA
which will be treated as a Roth conversion if all other conversion
qualifications are satisfied;
Permanent
Retirement Provisions The 2001 Tax Act ("EGTRAA") made many
taxpayer- friendly changes, including catch-up contributions for older
workers, increased contribution and benefit limits, expanded rollover
provisions, etc. However, these provisions were temporary and would have
ended after December 31, 2010. The new law repeals the "sunset"
provisions that apply to retirement savings and make such incentives
permanent.
Charitable
Donations
- under the new law, no
deduction is allowed for used clothing and household items unless
the items are in "good" condition. Of course, the new law
does not define "good" condition. There is a limited
exception for donated single items appraised for more than $500 This
provision is intended to stem the growing number of clothing
donations that are deducted for amounts far greater than its actual
worth;
- no deduction is allowed
for any contribution of cash, check or other monetary gift unless
the donor can show a bank record or a written communication from the
charity indicating the amount of the contribution, the date of the
contribution and the name of the charity. This is a major change
that give taxpayers no leeway, regardless of the amount of the
contribution;
- through December 31, 2007,
taxpayers will be able to make tax-free distributions from IRAs for
charitable purposes. This provision applies to traditional and Roth
IRAs;
The
provisions of this bill are quite complex, representing the first
comprehensive pension legislation in more than 30 years. It will require
the assistance of one's tax, pension and retirement advisors to
understand and implement the planning opportunities and to ensure proper
compliance.
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